Porto Office Market 2019 Cover: Porto Office Park
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PORTO OFFICE MARKET 2019 COVER: PORTO OFFICE PARK A publication: With the support of Porto City Council: PORTO OFFICE MARKET Porto: Between a river full of investments and a sea reflecting sound economic waves The city of Porto is increasingly seen as a popular IV. Campanhã’s Intermodal Terminal: Promised to the investment destination, thanks to its value proposition city since 2003, the Terminal that completes the based on the ample availability of qualified human mobility system of the eastern part of the city was resources, excellent infrastructures, a vibrant and never built. The City Council plans to take multi-functional entrepreneurial ecosystem, advantage of the existing works on the Terminal to a multicultural environment and the recognized build an urban park and better access points to quality of life in the city. All these conditions enable Campanhã Station; the city to reinvigorate its economic model. In summary, all areas of the city offer attractive 2019 is the year in which a lot of the city’s future will opportunities for residential and corporate real estate. begin to materialize: We hope you take advantage, for the sake of Porto, its people, and the experience that we provide to those I. Matadouro Project as the economic engine of the who visit us. Campanhã area: while 2018 witnessed the start of major restoration works on the emblematic Bolhão In this context we very much welcome the second Market, 2019 should see the start of works on the edition of this report on the Porto office market. More Campanhã Matadouro Project (subject to approval and better market information, and greater by the Court of Auditors). This will house a transparency, increase the quality of decision making, corporate space, as well as cultural and social also fostering the attraction of a group of investors activities; with a longer-term and more structural character investment profile, thus providing the market with II. Rosa Mota Pavilion concluded: The refurbishment more sustainable growth conditions. of the Rosa Mota Pavilion, which began in 2018, will be finalized in 2019. The pavilion has long been in a I therefore hope this investment poor condition, and the old sports hall, later named and promotion of Porto after the Olympic athlete, will be able to host a is to continue! number of uses, such as medium to large-size congresses, musical performances, exhibitions and Ricardo Valente sporting events; Economy, Tourism and Trade and EU Funds Management Councillor III. Construction begins on a new line of Porto’s Porto City Council Underground: This infrastructure is essential to consolidate the public transport offer in the city and to enable new approaches to traffic and mobility. The new line will link Casa da Música to the downtown São Bento station, via undeniably important places such as the Materno-Infantil Centre, Santo António Hospital or Rosa Mota Pavilion; 3 MATADOURO PROJECT 4 PORTO OFFICE MARKET Porto is currently a serious candidate in Europe 2018 was another for the location of multinational companies in the dynamic year for the technological sector, business process outsourcing and shared service centres. The space requirements Greater Porto office of these occupiers are different from the traditional demand for offices in Greater Porto and the market market, underlining has been adapting accordingly, with increased the region’s economic investment and development activity, both new constructions and refurbishment progress and thanks of existing buildings. to a concerted and In 2017, Cushman & Wakefield produced the first-ever comprehensive study of the Greater Porto successful strategy office market in partnership with Predibisa, to attract investment. with a view to mapping the market and stimulating investment. Two years after the release of the first report, we are pleased to launch the second edition, which we hope will continue to be a reference for developers, occupiers and investors, encouraging transparency and growth of this all-important segment of the real estate market. Eric van Leuven João Nuno Magalhães Executive Partner General Partner Head of Portugal 5 ECONOMIC CONTEXT The Porto Metropolitan Area (PMA) is the second ECONOMIC INDICATORS economic centre of the country and generated PMA - 2018/2019* a GDP estimated at more than €29 billion in 2018, representing 16% of national GDP. The economic 1.9% / 1.5% prospects for the region are positive, with an average annual GDP growth estimated at 1.1% between GDP 2019 and 2022. Similarly to the previous year, the improvement in household disposable income 2.5 % / 1.9% in 2018 remained of the order of 3.5%, contributing Private consumption to a 2.5% increase in private consumption. 3.5% / 1.7% Healthy levels of consumption will remain throughout Disposable income per household 2019, with an estimated increase of 1.9%, driven by further growth in household income of the order of 8.6% / 8.1% 1.7%. The strong activity in the office market in the region is reflected by an improvement in the Unemployment rate unemployment rate which was 8.6% in 2018 and forecast to improve to 8.1% in 2019. The economy of the Porto Metropolitan Area reveals a structural change in the last decade, with substantial GVA - 2008 vs 2018* growth observed in the most capital-intensive sectors. Between 2008 and 2018, the scientific and technical +20% activities and information technology increased by Scientific and technical activities 20% and 16%, respectively, in their contribution to the total Gross Value Added (GVA) in the PMA. +17% The importance of tourism in the region is also worthy Retail of note in this variable: the contribution to GVA of the Hospitality & Catering sector increased by 14% in the last decade, and retail by 17%. +16% IT +14% Hospitality & Catering * Oxford Economics Forecasts 6 PORTO OFFICE MARKET TOTAL SUPPLY MAIA The total office supply in Porto - which includes existing buildings in the municipalities of Porto, Maia, Matosinhos and Vila Nova de Gaia – exceeded MATOSINHOS 1.5 million sq. m of GLA (Gross Lettable Area) at the end of 2018, in more than 500 properties. The city of Porto concentrates most of the supply, PORTO approximately 820,000 sq. m of offices in more than 250 buildings, which account for 54% of the total. VILA NOVA DE GAIA SUPPLY BY ZONE 18% 26% 14% 1 - Porto - Boavista 2 - Porto - Downtown 13% 3 - Porto - Oriental 4 - Porto - ZEP 5 - Maia 14% 6 - Matosinhos 9% 6% 7 - Vila Nova de Gaia PORTO BUSINESS PLAZA 7 PORTO OFFICE PARK SUPPLY BY QUALITY (sq.m by zone) 1 0 0 9 0 8 0 7 0 6 0 5 0 total supply 4 % 0 3 0 2 0 1 0 0 1 - Porto - Boavista Boavista is the largest office zone in Greater Porto, 2 - Porto - Downtown with more than 100 buildings and a total GLA approaching 400,000 sq. m. This location also 3 - Porto - Oriental concentrates the higher quality assets. Buildings classified A or B+* represent 45% of the total, around 180,000 sq. m. The municipality of Vila Nova de Gaia 4 - Porto - ZEP is the second largest office area of Greater Porto, A /B with more than 260,000 sq. m, but the quality of its + 5 - Maia properties is frankly lower: only 16% of the supply 8 B qualifies as A or B +. 6 - Matosinhos The eastern area of Porto (Porto - Oriental) C is substantially smaller, with just over 130,000 sq. m, 7 - Vila Nova de Gaia but given these are mostly recent projects, the D proportion of better-quality offices is the biggest in the market, reaching 59%. The areas of Maia and Matosinhos also stand out in terms of quality, with 53% and 47% respectively of their total supply of buildings graded A or B +. * The assigned quality grades vary between A and D, A being the highest quality and D the lowest PORTO OFFICE MARKET AVAILABLE SUPPLY As the Greater Porto office market is gaining momentum, the levels of transparency are too, with information being shared more frequently between owners and agents. VACANCY RATE BY ZONE 10 9 8 7 6 % 5 4 3 2 1 0 1 - Porto - Boavista 2 - Porto - Downtown 3 - Porto - Oriental 4 - Porto - ZEP 5 - Maia 6 - Matosinhos 7 - Vila Nova de Gaia The first office market report produced in 2017 by Cushman & Wakefield and Predibisa analysed the vacancy rate of about 70% of the total office supply. In this 2018 update there was a considerable increase in the coverage of the vacancy rate, which was fixed at 88%. The vacancy rate in Taking into account the information obtained for Greater Porto stood at the sample (over 1.3 million sq. m), the vacancy 7.3% in December 2018, rate in Greater Porto stood at 7.3% in December 2018, representing a significant decline of 450 basis points representing a significant compared to 2017. The Porto areas - ZEP and Matosinhos show the lowest vacancy rates, both decline of 450 basis at 5.6%. The prime market area, Porto - Boavista points compared to 2017 also shows a lower rate than the Greater Porto average, at 6.4%. The highest vacancy rate is found in Porto-Oriental, at 10.7%, largely influenced by its smaller stock, with only 13,900 sq. m of vacant space. 9 VACANCY RATE BY GRADE The analysis of the vacancy rate by grade highlights the obvious shortage of quality office space in Greater Porto. 18 The best quality buildings, classified as grade A and B+, show a vacancy rate of only 3%. Not 16 surprisingly, the indicator rises proportionately as 14 the quality of the supply decreases, reflecting 18% vacancy rates for buildings classified as grade D.